Nigeria: A Fresh Start

NIGERIA A FRESH START The Future Will Be Different.

THE

RISING

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The Future Will Be Different, We Are Ready For It.

A presentation by Sterling.ng Page 1

NIGERIA. A FRESH START.

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While the novelty of this new virus may shroud the validity of this adage, truly, there remains nothing new. As with previous pandemics, COVID-19 has brought the world to its knees.

Its magnitude, combined with globalisation, has rid the world of safe havens, and forced an abrupt pause. With this pause comes a new order: one that overrides the best-laid plans, and commands a reimagining; one with new opportunities.

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A Global Scan Relaunching Nigeria An Industry In Flight The Sterling Way Vision 2020 Revisited

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- Winston Churchill

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A Global Scan

THE WORLD IS TRULY INTERCONNECTED...

Though national governments have taken proactive measures toward bolstering the social and economic impacts of COVID-19, the global economic outlook remains bleak.

World output, according to the International Monetary Fund (IMF), is expected to contract by 3%, making this the worst since the Great Depression. For Sub-Saharan Africa, the World Bank predicts an economic decline from 2.4% in 2019 to as low as -5.1% in 2020.

On a positive note: this pandemic highlights our interconnectedness, and how far we have come with technology and globalization. We are more conscious as individuals, and as leaders, about the effect of our actions on the entire world. This collective responsibility poses a catch-22: the better we respond to curtailing the crisis through lock-downs, the harder our economies are hit.

Yet, if we fail to take the difficult but necessary precautions to flatten the curve, more aggressive measures will be required to soothe the resultant economic and social pain.

Deciding how much adverse effects on supply chains, revenue, employment, demand and per-capita income to trade-off for saving more lives and preventing unmitigated disruption to our economies must the most difficult decision any leader has ever made outside war.

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AND AFRICA RELIES ON THE GLOBAL SUPPLY CHAIN...

There will be trade-offs. For African countries, the price to pay may be higher due to our high level of dependency on the global supply chain (illustrated below). Our notable trade deficits also presage foreseen economic disruption; resource-exporting countries experiencing sharp declines in revenue, and in turn, weakening currencies and dampening purchasing powers.

Nigeria

China

Spain

Italy

France

TOTAL

4.10%

3.10%

–

2.80%

–

28%

6.80%

8.20%

5.20%

14.20%

2.80%

9.80%

–

18.40%

Algeria

18.10%

Morocco

United Kingdom

19.40%

South-Africa Egypt

India

–

2.50% –

–

–

– –

15.80%

–

4.30% 5.60%

2.90% –

9.30%

11.90%

30% 21%

42% 43%

Source: Santander Trade

Nigeria, with 86% of its export revenue is represented by petroleum and 31% of its 2020 budget revenue is accounted for by oil revenue, the impact of the lockdowns will be immediate. Head (export) or tail (import), this will be a year to forget.

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Looking forward, away from the pandemic, three areas remain at the forefront of global relationships:

1. ENERGY & ENVIRONMENTAL POLITICS 2. TRADE 3. TECHNOLOGY

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WHAT WE SEE IS NOT PRETTY BUT...

We see an energy battle but a climate war

At the onset of the outbreak, two major oil producers started a battle for market share. The show of strength between Saudi Arabia and Russia drove prices down sharply, catching the commodity exporting nations off-guard. A global containment of covid-19 and a demand shock has quickly halted the game of energy dominance but failed to end the downward spiral.

The climate challenge arising from this is double edged; a sustained moderation in energy consumption is good for the environment but lower crude oil prices erode the competitiveness of alternative energy.

Can the advancements in clean energy match a $30 per barrel fossil fuel?

The science suggests that climate crisis will be worse than the effects of covid-19, and unlike the virus, once we wreck the environment, there’s no vaccine to look forward to.

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THE PANDEMIC WILL HASTEN A RESOLUTION...

but Technology is the biggest trade

“Trade wars are good and easy to win”.

What is certain is that there has to be a balance, it is no longer viable to have one dominant factory for the world; building redundancy in the global supply chain and having multiple suppliers will become the preferred & sensible approach in the coming years.

Technology has gone from being a useful tool for productivity enhancement to a new front in the trade war and in its most extreme form, a security threat to the sovereignty of nations.

Technology will become the more important discussion for countries and how they relate going forward.

Beyond the role technology has played in keeping the economy open during the great lockdown and the greater role in future recovery, its real power lies in its ability to shape social consciousness, gather intelligence and erode longstanding advantages of conventional warfare.

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Now that the world is anew is this Nigeria’s remake?

WE CANNOT EXPECT OTHERS TO COME TO OUR ASSISTANCE...

WE CAN ONLY DEPEND ON OURSELVES NOW

- President Muhammadu Buhari

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Relaunching Nigeria

AS FAR AS OIL CAN GO

It is said that Nigeria has an impeccable survival record. It just keeps going no matter what.

Nigeria is currently battling with the twin shocks of a surge in COVID-19 cases leading to economic lock-downs and a slump in oil prices, turning negative for the first time in history.

The fallout from the plunge in non-oil revenues due to the lock-down in certain parts of the country, thinning out in oil revenue and a weakening current account has compelled the Federal government to resort to external borrowing from the International Monetary Fund and World Bank.

Resilient, nonetheless, the nation is adopting survival methods, and proving that the philosophy of ‘government enabled; private-sector led’ is superior to the ‘government-led’ previously favored.

From the emergence of telecommunications and the growth in agriculture, the private sector economy is increasingly growing critical sectors of our economy while creating jobs.

IS THAT SUCH A BAD THING?

History has shown that in the aftermath of every pandemic, new industries emerge from the ashes. As Nigeria sets out to re-build its economy sustainably, we expect an emergence of these sectors and industries:

Public Health: We continue to advocate for and expect to see mandatory health insurance, a ramp up of local production in pharmaceuticals and basic medical materials.

Information and Telecommunication Technology: Technology will drive entrepreneurship as companies strive to capture the benefit of remote work while enhancing their productivity.

Intermediation: In the absence of reliable data, financial services had struggled to

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mainstream access to credit and distribute investments. The adoption of new technology will enable geometric growth in financing for consumers and small businesses; a critical component of any economic recovery plan.

...OR THE LAUNCH OF A REAL ECONOMY

Power: The demand for electricity will continue to increase, but the supply constraint

remains. We remain committed to renewable energy as the most viable alternative for

Nigeria.

Light Manufacturing: Proudly Nigerian will become more than branding. The critical role

they provide for revenue and consumption mean that manufacturers will get a bigger

boost either through concessionary financing or an improvement in the required

infrastructure.

Agriculture: With the increasing risk of a global food shortage, Nigeria will continue to

pursue a strategy of food sufficiency to drastically reduce the need to import. Combined

with the urgent need to conserve foreign exchange, food cultivation, processing, storage

and trading will witness sizeable investment supported with single digit intervention

financing.

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An Industry In Flight

YET ANOTHER BANKING EPITAPH...

Post Covid (PC), we will expect more technological innovation (data science, artificial intelligence, machine learning) and more inclusive regulations to accommodate new entrants – technology firms, specialist finance providers and other large institutions.

The operating environment of the Nigerian banking sector coming into 2020 was already challenged. Add a significant drop in oil prices as well as a pandemic to the mix and the signals of deterioration in asset quality – with the consequent rise in impairment losses – become very clear. Even with the monetary policy response to COVID-19, we think it is only a matter of time before loans start to migrate from performing or watchlisted to non-performing status, with oil & gas, hospitality, real estate, transportation and small businesses taking a big hit.

For Nigeria, financial services, telecoms, fintech and government must now work together to accelerate access to credit and cushion the effects of the economic disruption.

...AND MAYBE, CRYPTOCURRENCIES

BY OTHER MEANS

An explosion in digital transactions is expected Post-Covid with cryptocurrency taking a center stage; Recent report of an 800 percent rise in cryptocurrency transactions in India could catalyse the emergence of digital money. The bank for international settlement and the central banks of Switzerland, Japan, Canada, European Union and United Kingdom have accelerated research into viability of digital currencies.

On the back of the damaging trade war, a new world order where the dollar is one of many reserve currencies could emerge, with sovereign backed digital currencies in the mix.

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The Sterling Way

STERLING.NG ENRICHING LIVES...

On the 1st of January, 2019, we were reborn as Sterling – to highlight the change in how we see our challenges, the competition and ourselves. Our business model will leverage industry knowledge, advanced technology & ethical financing to empower our stakeholders. .

...LEGACY NOT STAGNANCY

Our journey towards a fully digital product stack began in 2016 with the switch to a best in class CORE banking systems, the backbone of any banking transformation. We have continued to invest in systems that allow all customers self-serve and enable our workers to function remotely.

These investments paid off with the current disruption as our staff are able to function remotely without significant loss in productivity. As we head into the post covid world, our people strategy remains the same, build the best place to work. There is no better time for us to leverage the new way of work to improve efficiencies, while enhancing the quality of the lives of our employees as they adopt more flexible work culture.

The two most popular in-branch transactions have continued to decline as more of our customers moved to self-service. As at the end of 2019, customer induced payments on mobile devices had replaced most withdrawals and transfers, freeing up our branches to provide better experiences.

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...A FULLY digital PLAYBOOK

Digitization must empower us to grow existing markets and create new markets in a more effective, more efficient, and more engaging manner.

This has guided us in our product and service design allowing us to build our own truly local digital playbook.

Our product stack, including lending, payments, investments and commerce are the outcomes of rethinking legacy systems where possible as well as radical new thinking to serve in the digital world both online and offline.

The key achievements of our digital playbook are its contribution to customer acquisition, revenue generation and loan book growth. Our products are designed with a B2B2C (businessto- business-to-customer) model, bringing trust, scale and transparency to our ecosystems.

...BANKING AS A SERVICE

Payments is at the heart of banking. While we continue to specialize even in our approach to markets, products such as our OneBank (digital bank), Switch (Diaspora banking), SterlingPro (transaction banking) have world class payment capabilities that empower individuals and businesses to move money easily locally and internationally.

Enriching lives requires that you understand and provide the right solutions to the customer’s problems. Our lending system aims to ensure access to finance is not an obstacle to growth. Our flagship lending product - Specta (www.myspecta.com), contributes 5% of our loan book and growing.

We resolved to extend banking for the average consumer and small business beyond payments and credit, to advisory and wealth building through Doubble (www.doubble.ng) and i-invest (www.i-investng.com). These applications provide compelling investments options for individuals and businesses alike through self-service.

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Vision 2020 Revisited

...SOLVE PROBLEMS CLOSE TO OUR HEARTS

We remain committed to doing our part for the sectors that ensure the well-being of an economy. The HEART (Health, Education, Agriculture, Renewable Energy and Transportation) of Sterling will use finance and technology to build capacity and scale businesses in these sectors.

This will range from providing power for individuals and funding for clean energy businesses through Imperium, supporting SMEs through AltMall (www.altmall.ng) and unlocking credit on SABEX, our digital commodities trading platform for agriculture.

SABEX provides real time credit finance for farmers, secures storage and a ready market for both farmers and buyers to transact thereby reducing post-harvest wastage of farm produce across the country. We will continue to expand our investment in transport technology through Farepay (www.farepay.ng) which allows for transparency in the collection system for transport services.

OUR HOLISTIC SUPPORT FOR THE HEALTH SECTOR

We recently announced multiple donations to ensure a holistic response to the Coronavirus pandemic ravaging the world.

The donations cut across infrastructural support to providing opportunity for free tests across different locations and financial support to the federal government in partnership with the Nigerian Private Sector Coalition Against COVID. The sum of N250 million was donated to support the Federal Government's effort to curtail the spread of the novel Coronavirus (COVID-19) in the country and end the epidemic.

Also, in furtherance of its focus on not just the health sector but the healthcare professionals who risk their lives while treating infected persons, we have also supported

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SUN crowdfunding platform, www.giving.ng to raise a N1billion Health Workers Fund to cater to the needs of health workers at the front-lines taking care of those infected with the Coronavirus disease (COVID-19). We donated N25million to kick-start the fund. It will enable corporations, institutions and individuals in Nigeria and the diaspora support healthcare workers and reward them for their sacrifice and bravery.

In addition to this, we also supported the country's first COVID-19 drive-thru mass mobile testing center with an initial investment of N10million. This was done in partnership with Life Bank and the Nigerian Institute of Medical Research (NIMR) to make testing easier and faster. This reduces the burden of testing on the Nigerian Center of Disease Control (NCDC) and the risk of contagion of the disease due to ignorance of infected persons. The investment will be scaled up as the project expands to different locations across the country.

To strengthen public health infrastructure, the Bank donated N50million for the equipping of the COVID-19 Isolation ward at the National Orthopedic Hospital, Igbobi, Lagos in partnership with Fate foundation philanthropy to cater to the increasing COVID-19 confirmed cases.

The Bank will continue scaling efforts to mitigate the negative impact of the pandemic and promote a healthy society for the country.

...bad, but not all bad news

We see some clear threats to our business but the opportunities are overwhelming for the discerning:

A contraction in banking sector bottom-line due to regulatory and macroeconomic headwinds; An increase in impairment losses further putting a pressure on earnings; Increased investment (private and public sector) in our areas of focus, specifically Health care, Agriculture and Education Increased adoption of our digital offerings by customers in response to social distancing rules

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2020 REVISITED

We fully understand that the knock-on effect of falling oil prices and the Covid-19 induced economic shutdown will affect our business projections for 2020 and beyond.

We understand the risks posed by the impending global recession but we are prepared to weather the storm, like we have done so many times in the past 60 years. We are equally alive to the opportunities we have highlighted even as we navigate the threats.

2020 may not be the year we all planned for but it is an opportunity to strengthen our foundation, demonstrate our commitment to our employees and our customers, contribute generously to the fight against a once in a lifetime pandemic and still deliver meaningful returns to our shareholders.

Thank You Page 18

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